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Trump also mentioned his intent to impose tariffs on Canada and Mexico starting Feb. 1, sparking concerns of a trade war that could impact economic growth and, as a result, oil consumption.
Trump said that on his first day in office, he would place 25 percent tariffs on all Canadian and Mexican goods. The two countries are the leading sources of U.S. oil imports.
Tariffs that encourage U.S. production might be appreciated when foreign supplies are cut off. Paying slightly higher prices for vital goods and equipment could be preferable to doing without someday.
Tariffs are often used to make imported items more expensive on purpose to encourage consumers to buy domestically made products, stimulate domestic production and increase domestic employment.
“If Trump does move ahead with tariffs, it would essentially boost the price of oil that these refineries are paying by 25%, which in this case today, would amount to about $15 a barrel,” he said.
The effects of those barriers on trade flows, prices, and output are projected to peak during the first half of 2020 and then begin to subside. Tariffs are expected to reduce the level of real GDP by roughly 0.5 percent and raise consumer prices by 0.5 percent in 2020.
Mexico is also a major supplier to the U.S. market, accounting for about 10 percent of all crude oil imports in 2022. If tariffs make those imports 25 percent more expensive (or if the flow of oil ...
Marginal subsidies on production will shift the supply curve to the right until the vertical distance between the two supply curves is equal to the per unit subsidy; when other things remain equal, this will decrease price paid by the consumers (which is equal to the new market price) and increase the price received by the producers.